All that glitters...

Gold is one of the most coveted materials on earth – it’s a store of value, a means of adornment, and has a variety of industrial and medical uses. However, few of us stop to think about how gold is mined today in some of the world’s poorest nations

Sourcing responsible gold is an established practice amongst fine jewellers. The Responsible Jewellery Council was set up in 2005 with a code of ethics and annual assessment practices. However, 20% of the world’s annual gold production still comes from the Artisanal and Small Scale Gold Mining (ASGM) sector, which is often deemed illegitimate. As many as 15 million people work in this sector globally, including 4.5 million women and over 600,000 children.

Current practices lack the transparency and ability to meet the responsible sourcing standards that many companies demand. Besides jewellery, gold is used in consumer electronics, automobiles, construction, medical devices and telecoms equipment. ASGM faces abundant bottlenecks to development such as geopolitical conflicts, policy stability, land rights disputes and gender discrimination. However, this means there is a positive impact opportunity if operations can be formalised and standards improved, benefiting local communities that rely on gold mining as a major source of family income.

To this end, we participated in the implementation launch of the GEF Global Opportunities for Long-Term Development in Artisanal and Small Scale Mining Programme in London in February 2019. This aims to help miners in eight emerging and frontier markets, namely Burkina Faso, Colombia, Guyana, Indonesia, Kenya, Mongolia, Peru and the Philippines. The goal is to reduce mercury pollution by replacing current mining techniques with cleaner, more efficient technologies and methods.

Positive change

At the launch’s Access to Finance panel discussion, Hermes EOS emphasised how different forms of capital and financing could contribute to the healthy development of the ASGM sector. As we seek positive outcomes in our engagements, we will encourage relevant financial institutions to consider responsible and affordable microloans and micro-insurance, as well as healthcare, education and income protection funds for the disenfranchised population. Financing for ASGM often falls into the categories of capital expenditure or operating expenditure. Both, when appropriately structured, can be supported by non-collateralised micro-loans.

Other panellists drew from their experience investing and engaging in Rwanda, Tanzania, the Democratic Republic of Congo and Peru. Reflecting on the informative debate amongst panellists and the audience, which included representatives from the programme’s beneficiary countries and specialists from NGOs, there was strong support for the formalisation of the sector, but the way in which this can be achieved will require thoughtful planning.

One attendee argued that family-run mining offers better long-term value; another suggested that state-managed operations improve oversight. A third suggested tax incentives from governments to boost interest. However, some participants highlighted that access to finance is already provided by local financing institutions including some with which we already engage, and these have a vested interest in the growth of the local economy.

To conclude, although the risk of investing in this sector is often deemed to outweigh the potential return, this conference provided much food for thought. In our engagement, we will continue to urge well-positioned financial institutions and corporates to provide a range of financing options for ASGM to support local communities.

Key takeaways

1. Corporate engagement: Financial institutions in emerging markets can strengthen their ESG risk assessment framework, aligning their due diligence approach with the UN Guiding Principles on Business and Human Rights. They should consider the use of technology, such as an extension of their services through digital channels, to support sustainable development efforts to reduce poverty and inequality.

2. Impactful partnerships: Many local financing institutions have on-the-ground knowledge to support access to finance for ASGM. International capital, such as social finance, venture philanthropy and impact investment organisations, can help to scale this up.

3. Public policy and market best practice engagement:When local governments help integrate ASGM into the formal mining sector, they should design appropriate and transparent incentives systems, and ensure community engagement and best practice management of cooperatives. There should be policy harmonisation to provide a unified framework to discourage arbitrage, and governance oversight in areas where bribery and corruption could run rampant, such as local aggregation centres.

Dr Christine Chow

Lead: Asia & Emerging Markets. Sector lead: Technology

Dr Christine Chow is head of engagement in Asia and global emerging markets. She has 24 years’ experience working in the investment management industry, research and consulting. Christine's PhD thesis on shareholder engagement for responsible investment was short-listed for a UN award in Sweden for industry relevance and academic excellence. Christine is an elected member of the Court of governors at the London School of Economics (LSE) and a member of the School’s Investment Sub-Committee. She is a member of the Data Governance Task Force of the UK All Party Parliamentary Group on Artificial Intelligence and a board member of the International Corporate Governance Network (ICGN). In September 2019, she was named as one of Brummell Magazine’s Inspirational Women in the City of London. The list celebrates 30 female who are leaders in their respective fields, as chosen by an independent panel of industry professionals across the financial sector. Christine is a graduate of LSE and the University of Melbourne. She completed an executive education course on financial engineering at Stanford University.